Bankrupting the Common People

U.S. Household Net Worth Drops

September 17, 2010

Reuters - U.S. household wealth fell by $1.5 trillion in the second quarter, according to Federal Reserve data on Friday that showed the strain a slow-paced recovery and high unemployment are putting on Americans.

Household net worth fell to $53.5 trillion, well below the $64.2 trillion it had reached at the end of 2007 when the recession officially began, according to the central bank's quarterly flow of funds report.

Declines in the value of financial assets -- especially in stocks and mutual funds -- accounted for much of the decline in second-quarter net worth. Stocks alone were down $1.9 trillion to $14.9 trillion, more than offsetting small gains in other areas like state and local government retirement funds.

Consumers pared debt at a seasonally adjusted annual rate of 2.3 percent, the ninth consecutive quarter in which they did so. Home mortgage debt fell at an annual rate of 2-1/4 percent after a 4-1/4 percent drop in the first three months this year.

During the financial crisis that wracked the country from 2007 to 2009, trillions of dollars in housing and financial market wealth was wiped out and heavy household and financial sector indebtedness was exposed.

The government has stepped in with increased spending and stimulus programs to try to spur recovery but the unemployment rate in August edged up to 9.6 percent and housing markets are still in distress.

Federal government debt expanded during the second quarter at a hefty 24.4 percent annual rate after a 20.5 percent increase in the first quarter. By contrast, state and local government debt shrank 1.3 percent during the second quarter.

Business debt excluding financial companies was up a slim 0.1 percent following a 0.5 percent rise in the first quarter.

Data issued on Thursday by the U.S. Census Bureau similarly underlined the extent to which the financial crisis and ensuing recession has hurt household incomes.

The Census Bureau's annual look at U.S. living standards -- once the envy of the world because of the upward mobility Americans could tap into -- found the poverty rate at a 15-year high of 14.3 percent in 2009, up from 13.2 percent in 2008.

Poverty Rate Hits 15-year High

September 17, 2010

Reuters - The U.S. poverty rate rose to 14.3 percent in 2009 from 13.2 percent the year before, bringing the percentage of the population living in poverty to the highest level since 1994, as the economic downturn took its toll on jobs, the government said on Thursday.

The Census Bureau said 43.6 million people, or one in seven Americans, lived in poverty last year, up from 39.8 million in 2008. The data paints a picture of rising hardship and declining incomes for many living in the United States and hands more bad economic news to Democrats ahead of November 2 congressional elections.

"Our economy plunged into recession almost three years ago on the heels of a financial meltdown and a rapid decline in housing prices," President Barack Obama said in a statement.

"Last year we saw the depths of the recession, including historic losses in employment not witnessed since the Great Depression," Obama said. His economic recovery package enacted last year, he said, had helped keep millions from falling into poverty in 2009.

The poverty threshold for a family of four in 2009 was $21,954, the report said. The Census report relies on cash income and government payments, including unemployment insurance, to measure poverty.

But the data omits other government assistance, such as food stamps and low-income tax credits, that were increased in last year's economic package.

Republicans pounced on the report, saying it showed that the government aid enacted by Obama and his congressional Democrats was not working.

"What poor Americans, like all other Americans, need are jobs, not more government benefits," said Republican Representative John Linder.

The worst recession in decades began in December 2007 while Republican George W. Bush was president and the recovery has been slow to take hold.

While poverty levels rose, the number of people without health insurance jumped to 50.7 million in 2009 from 46.3 million a year earlier, leaving 16.7 percent of the population without health coverage, the Census Bureau said in its annual report on income, poverty and health coverage.

The data show that the impact of the economic downturn hit people at lower income levels the hardest, and many more would have fallen into poverty but for the additional unemployment payments approved by Congress, Census spokesman Stanley Rolark told reporters.

The annual measure of how well Americans are living is important because lawmakers and analysts use it to assess the overall health of the U.S. economy as well as the effectiveness of government programs.

The poverty rate in 2009 was the highest since 1994, but was 8.1 percentage points lower than the poverty rate in 1959, the first year for which poverty estimates are available, the Census Bureau said.

Median income declined between 2008 and 2009 for non-Hispanic white and black households in the United States, while Asian households had the highest median income in 2009. Median income for Hispanic-origin households was about the same in 2009 as in 2008, the report said.

Health Premiums Rose 7 Percent in 2009

September 16, 2010

Reuters - U.S. health insurers took in 7 percent more revenue from premiums from individual, group and other policies in 2009 than in the previous year, even as the number of those people with coverage fell, according to a report released on Thursday.

Individual premium revenues rose 15 percent while group premiums, which involve mostly employers, rose nearly 3 percent, according to the report from the National Association of Insurance Commissioners (NAIC), an organization whose prominence has grown following passage of the new U.S. health reform law.

The report was based on company annual financial filings to the NAIC. It was not a complete depiction of the privately insured market, the organization cautioned, because not all health insurers must file with such state departments.

"The takeaway message probably is that as we're working to implement this new insurance reform, healthcare costs continue to go up, which does drive up the cost of insurance," Kansas Insurance Commissioner Sandy Praeger, who chairs the NAIC Health Insurance and Managed Care committee, said in an interview.

"Premiums don't just go up without the evidence demonstrating that healthcare costs are going up," Praeger said. "Departments look at premium increases. The companies have to be able to justify those increases based on claims experience, that's the bottom line."

Premium increases by health insurers have been criticized during the debate over healthcare reform, and Praeger acknowledged that insurance commissioners are taking closer looks at the premium requests from companies.

Earlier this year, California regulators approved a smaller rate request by WellPoint Inc after finding errors in the insurer's original rate proposal.

The NAIC report found that the number of covered lives fell 7 percent in 2009. Layoffs caused by the weak economy that led to fewer people with employer-based coverage was likely a main culprit for the decline, Praeger said.

People who lose their jobs and yet continue to buy healthcare coverage probably do so expecting to need the coverage because of their health situations, Praeger said, meaning they will be likely to consume more health services -- making them more expensive to cover. Meanwhile, healthy and young workers who lose their jobs avoid buying coverage after being laid off, she said.

"The risk pool, the number of people who stay insured during this down economic time, are people who know they need it," Praeger said. "That drives up the cost of the health care for that pool and that will have an impact on the premium."

Another possible factor for rising premiums, she said, could have been that insurers were seeking to build up their reserves in case of a pandemic involving the H1N1 flu, a catastrophe that never came.

According to the report, the top 10 health insurers captured 45.5 percent of the market, based on premiums.

A key ratio typically used to define the percent of premiums spent on medical costs increased to 84.1 percent in 2009 from 83.2 percent the prior year, according to the report. The new reform law is requiring that insurers meet a certain threshold for such spending -- known as the medical loss ratio.

The NAIC is expected to soon release closely watched recommendations to the U.S. government about what types of medical costs should be included in the ratios.

The higher medical loss ratios found in the report are a "good thing because they're going to have to meet those new standards going forward," Praeger said.